Centamin: Egyptian royalty

But the gold miner, which saw costs increase against a flat top line in 2017, has a second audience to urgently attend to: the Egyptian state. After several years of production growth, during which time gold prices steadily crumbled, the profit-sharing model which paved the way for the Sukari mine’s permitting is now in full swing.

So, while chairman Joself El-Raghy can – and should – boast that Sukari has cash costs “in the lowest quartile in the industry”, free cash flow generation of $142m in 2017 was down 41 per cent year on year. While that was “almost entirely” due to increased profit share payments to Egypt, it does skew the earnings profile somewhat, as the significant drop in the table below suggests.

In fact, a slight dip in sales, together with higher fuel costs and planned fleet rebuilds, meant gross profit was already down on 2016. Not that shareholder distributions have suffered terribly, even compared with last year’s gargantuan final dividend; the 12.5p-a-share payout for non-governmental stakeholders is still equivalent to 100 per cent of free cash flow.

Yet herein lies the precarity of the Centamin business model, which partly explains the group’s discounted rating to its peers. This year, the company expects cash flow after royalties, corporate costs and Egypt’s 43 per cent take to hit $160m, assuming a modest $1,250 an ounce gold price and a bullish 6 per cent increase in output. Of that, $48m has been set aside for the dividend, with a further $75m euphemistically earmarked as “excess” cash flow. That leaves just $22m for exploration, despite a growing need to replace falling reserves and dilute its geographical concentration.

Numis, which reckons gold will trade at $1,300 an ounce in 2018, expects Centamin to generate EPS of 14¢ and pre-tax profit of $307m this year, compared with 13¢ and $251m in 2017.